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Italian F-35 Lightning II Program Economic Impact Assessment 3 February 2014
Index Page 1 2 3 4 5 6
Overview Facts and Figures Methodology for Impact Assessment Impact Assessment Additional Benefits Summary
1 3 9 12 17 20
Appendices 1 Methodology for Impact Assessment
22
Section 1 Overview
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
3 February 2014 1
Section 1 – Overview
Overview •
In 2013-2014, PricewaterhouseCoopers - Italy (PwC - Italy) Conducted a Comprehensive Economic Impact Assessment of the F-35 on the Italian Economy.
•
The Study Identifies:
•
•
Italian Investment in the F-35 Program;
•
Economic Value Added to Italian Economy (direct, indirect and induced) as a Result of F-35 Production;
•
Employment Generated (direct, indirect and induced).
The quantification was conducted by means of a Combined Approach, which included: •
Direct Observation by Surveys, interviews and analysis of financial statements [direct impacts];
•
an extended Econometric Input-Output Modeling [indirect and induced impacts].
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
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Section 2 Facts and Figures
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Section 2 – Facts and Figures
JSF Program and Italy •
•
The JSF Program represents the Most Advanced Initiative in Fighter Jet Development, Production and Sustainment.
Italy Ordered a Total of
90 F-35s
Initiated in the 90s, the Program involves several countries, which, depending on their contribution in investments for the research and development phase and number of purchased jets, are eligible for different amounts of offered opportunities in the production and sustainment phases. Conventional
60
•
Italy, with a 4% involvement in the initial phases of the JSF Program, represents a Level II Partner.
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
Take off and Landing
30 Short Take off and Vertical Landing 3 February 2014 4
Section 2 – Facts and Figures
Research & Development Investments •
During pre-production phases, the Italian government invested $ 1 billion for the research and development. Additional $ 0.9 billion is being invested for the Production Sustainment and Follow-on Development phase.
•
Research & Development Investments are not included for the calculation of economic benefits (value added and employment).
$ 1 billion spent by Italy for research and development Additional
$ 0.9 billion is being invested for the PSFD phase.
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Section 2 – Facts and Figures
Production Investments •
To have all the required machining, tools, factories, etc. to Produce Components and perform Assembly Activities, a total of $ 1.7 billion investments is to be spent in Italy.
$ 1.7 billion of gross production investments in Italy
•
Half a Billion Dollars is represented by imports (of which 95% is accounted for by Lockheed Martin and only 5% by Italian companies); the remaining $ 1.2 billion is invested in Italy by Italian companies or by the Ministry of Defense.
•
Investments on production facilities and assets have been taken into account for the calculation of economic benefits (value added and employment).
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Section 2 – Facts and Figures
Production Opportunities •
$667 million in contracts have been let to more that 27 Italian companies to date; production value projected to be worth several billion dollars.
Almost
$ 0.7 billion completed
Areas of Italian Industrial Participation: ◦ Wing Manufacturing
•
•
Additional production opportunities to be offered as production matures. Production opportunities have been set according to the participation share and to the number of jets to be acquired by Italy.
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
◦ Electronics ◦ Machining ◦ F-35 Mating/Finishing ◦ Structures ◦ Support Equipment ◦ Engineering Support ◦ Cockpit Lighting 3 February 2014 7
Section 2 – Facts and Figures
Production vs. Investments •
In the period between 2007 and 2014, 80% of the investments to support production will be completed.
•
Conversely, by 2014, the Italian economy and labor market only benefits from a 3% - 4% share of the full potential returns from production orders; most of the benefits will accrue after 2016.
… but
80%
production and benefits have just started to accrue
of investments have already been completed
Production Italian F-35 Lightning II Program • Economic Impact Assessment PwC
Investments 3 February 2014 8
Section 3 Methodology for Impact Assessment
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
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Section 3 – Methodology for Impact Assessment
Methodology – direct impacts •
The direct impacts have been quantified by means of the direct observation of a sample of Italian companies.
•
The sample covered Companies representing all different involved sectors (i.e. wings, assembly, machining, electronics, structures and equipment).
•
The analysis considered: •
Value, type and location of investments made (and/or planned in the future);
Overall the direct observation phase covered
•
Origin and value of production inputs (Import vs. domestic);
about 62% of the
•
Number of direct workers per level of production.
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
overall expected production value.
3 February 2014 10
Section 3 – Methodology for Impact Assessment
Methodology – indirect and induced impacts •
The indirect and induced impacts calculation is based on a model resulting from the World Input Output Database (WIOD). The WIOD is recognized by the European Commission (EC) and the Organization for Economic Co-operation and Development (OECD).
•
The input output model allowed for the calculation of Indirect effects and Induced effects.
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
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Section 4 Impact Assessment
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
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Section 4 – Impact Assessment
What kind of benefits to expect? •
•
Both Investments involving Italian companies and Production Activities result in an effect on the Italian market in terms of economic benefits (value added) and demand for labor.
Value added = sum of profit, government income, labor cost, and depreciation cost
This impact is differentiated into: •
Direct impact refers to the amount of value (economic benefit or demand for labor) directly related with Italian companies producing components (or, in the case of investments: plants, tools, machines, etc.) for Lockheed Martin’s or any other JSF consortium member, which purchase them;
•
The indirect impact, on the other side, arises as these Italian companies have suppliers themselves; which thus receive orders and produce subcomponents, provide materials, etc.;
•
The induced effect is due to employees spending their wages in Italy, thus contributing to the overall Italian economy.
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Section 4 – Impact Assessment
Value added •
Total opportunities have been calculated to result in approximately $ 15.8 billion of Value Added in the total period (2007 – 2035).
•
Value Added is the result of investments, production, and consumption by direct and indirect employees.
60% of the benefit resulting by production is generated by the companies directly involved in the Program
$3,614
$2,863
$15,756 $15,756
into the Italian economy for each dollar spent in the JSF Program
$9,280
Total
Induced
Indirect
$ 1.08 return
Direct
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
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Section 4 – Impact Assessment
Employment •
The F-35 Program is Expected to Support More Than 6,300 Jobs in the Peak Year of Production.
•
The Peak for New Jobs is Reached in 2019. Every Direct F-35 Job Creates an Additional
6321
1.17 Jobs
2582
in Italy 831
Total
Induced
Indirect
2908
More than
6,300 jobs Direct
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
in the peak year 3 February 2014 15
Section 4 – Impact Assessment
Employment • •
Demand for Labor Remains at its Highest Levels From 2017-2023.
F-35 Quantity Reduction
(131 to 90)
The F-35 Program Will Sustain an Average of 5,450 Jobs Negatively Annually in Italy from 2017 to 2026. Impacted Job Creation 7,000 6,000 5,000 4,000 3,000 2,000 1,000 -
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 Induced labor
Investments
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
Indirect labor
Direct labor
Total
3 February 2014 16
Section 5 Additional Benefits
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
3 February 2014 17
Section 5 – Additional Benefits
New Jobs from FACO and Sustainment Activities •
The FACO in Cameri is also Positioned to Serve as the Maintenance, Repair, Overhaul (MRO&U) Center of Excellence for the European and Mediterranean F-35 Fleet.
•
The FACO in Cameri is has capability to accomplish Assembly Work for additional countries.
•
The Full Spectrum of Sustainment Activities Includes: management & Planning; maintenance, Repair, Overhaul & Upgrades; supply Chain Management; support Activities.
•
Lockheed Martin Projects Sustainment Work Conducted in Italy Will Support an Additional 1,900 Direct Jobs Over the Life of the Program (30+ years).
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Section 5 – Additional Benefits
New Technologies •
More Than Half of Italy’s Industrial Participation is Focused on the Application of New, Highly-Complex Manufacturing Techniques Used in the Construction of Wing and Related Composite Materials.
•
These Technologies Will Help Italian Industry Differentiate Itself in the Global Aerospace Market, Creating Additional Competitive Advantage and Opening New Market Opportunities.
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
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Section 6 Summary
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
3 February 2014 20
Section 6 – Summary
Summary •
The F-35 Production Program Will Support More than 6,300 Jobs in Italy in the Peak Year.
•
The F-35 Production Program Yields $15.8 Billion in Economic Benefits for Italy.
•
The F-35 Production Program Empowers Italian Industry and Workers with New, High-Technology Skills.
•
Italy is Positioned to Realize Additional and Substantial Economic Benefits Through F-35 Sustainment. Sustainment work potential for 1900 additional direct jobs (Calculated by Lockheed Martin).
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
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Appendix 1 Methodology for Impact Assessment
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
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Appendix 1 – Methodology for Impact Assessment
What triggers macroeconomic effects? •
PwC model quantifies the economic impact in Italy of the JSF Production phase and of the relative support Investment phase.
R&D investment
Production Investment
Production
Testing & training
Sustainment
Trigger of economy
Technology spillovers
•
Initial R&D Investments by Italy has not been considered.
•
The effects generated by Testing & Training are not considered in this quantitative analysis.
•
Also the effects resulting from the Sustainment and the Technology Spillover are not included in the quantitative analysis by PwC.
•
Lockheed Martin has carried out a preliminary assessment of the potential impact of Sustainment activities which is provided in slide 18.
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
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Input data from Lockheed Martin, Ministry of Defense and survey Order volume
1
Appendix 1 – Methodology for Impact Assessment
Direct Output = Production value Spend for
How the model works…
Ex emplary Input-Output Table of a closed economy
Q1
To
Q2
Tertiary Sector
Indirect employment
6
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
Other Final Demand
Private Consumption
Public Consumption
Total Demand
Q1 Intermediate usage Q2 Final demand Q3 Primary inputs to production Q4 Primary inputs to final demand
Primary Sector Secondary Sector
Q1
Q2
Q3
Q4
Tertiary Sector Wages & Salaries
Q3
Q4
Tax es Imports
Total Supply
5
Final Demand
Q1 Intermediate usage Q2 Final demand Q3 Primary inputs to production Q4 Primary inputs to final demand
Wages & Salaries Gross operating Surplus
Intermediate Demand
From
Other Final Demand
Private Consumption
Public Consumption
Tertiary Sector
Seconary Sector
Total Demand
Tertiary Sector
Final Demand
Primary Sector Secondary Sector
3b
Seconary Sector
Intermediate Demand
Primary Sector Intermediate Inputs
4
Primary Inputs To Production
The econometric inputoutput model for Italy quantifies the indirect and induced effects within Italy.
Direct Value Added
Income spent (demand in Italian economy)
Ex emplary Input-Output Table of a closed economy
From
•
Direct
Demand in Italian economy
3a To
Profit, depreciation, etc.
Primary Sector
The direct effects have been derived based on company data (survey on 5 companies representing different sectors and more than 60% of program value in Italy).
Employee compensation
Intermediate Inputs
2
Domestic input (supplied by Italian companies)
Indirect Value Added
Indirect income spent = demand in Italian economy
Primary Inputs To Production
•
Imports (imports from foreign countries)
Gross operating Surplus Tax es Imports
Total Supply
Indirect output = Indirect production
Induced employment
Induced Value Added
Induced output = Indirect production value
3 February 2014 24
Input data from Lockheed Martin, Ministry of Defense and survey Order volume
1
Appendix 1 – Methodology for Impact Assessment
Direct Output = Production value Spend for
How the model works… Domestic input (supplied by Italian companies)
Direct Value Added
Ex emplary Input-Output Table of a closed economy
Q1
To
Q2
Tertiary Sector
Q4
Tax es Imports
6
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
Indirect Value Added
Indirect income spent = demand in Italian economy
Primary Inputs To Production
Primary Inputs To Production
Indirect employment
Other Final Demand
Private Consumption
Public Consumption
Tertiary Sector
Total Demand
Q1 Intermediate usage Q2 Final demand Q3 Primary inputs to production Q4 Primary inputs to final demand
Primary Sector Secondary Sector
Q1
Q2
Q3
Q4
Tertiary Sector Wages & Salaries
Q3
Total Supply
5
Final Demand
Q1 Intermediate usage Q2 Final demand Q3 Primary inputs to production Q4 Primary inputs to final demand
Wages & Salaries Gross operating Surplus
Intermediate Demand
From
Other Final Demand
Private Consumption
Public Consumption
Tertiary Sector
Seconary Sector
Total Demand
Seconary Sector
Final Demand
Primary Sector Secondary Sector
3b
Primary Sector
Intermediate Demand
Primary Sector Intermediate Inputs
Direct
Income spent (demand in Italian economy)
Ex emplary Input-Output Table of a closed economy
From
4
Profit, depreciation, etc.
Demand in Italian economy
3a To
Employee compensation
Intermediate Inputs
2
Direct effects are based on planned production output (step 1). Gross Value Added, the direct employment as well as employee compensation - is represented in step 2. In step 2, imports from other countries are discarded from the analysis because they do not generate impacts into the Italian economy.
Imports (imports from foreign countries)
Gross operating Surplus Tax es Imports
Total Supply
Indirect output = Indirect production
Induced employment
Induced Value Added
Induced output = Indirect production value
3 February 2014 25
Input data from Lockheed Martin, Ministry of Defense and survey Order volume
1
Appendix 1 – Methodology for Impact Assessment
Direct Output = Production value Spend for
How the model works…
Ex emplary Input-Output Table of a closed economy
Q1
To
Q2
Tertiary Sector
Q4
Tax es Imports
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
6
Indirect Value Added
Indirect income spent = demand in Italian economy
Primary Inputs To Production
Primary Inputs To Production
Indirect employment
Other Final Demand
Private Consumption
Total Demand
Q1 Intermediate usage Q2 Final demand Q3 Primary inputs to production Q4 Primary inputs to final demand
Primary Sector Secondary Sector
Q1
Q2
Q3
Q4
Tertiary Sector Wages & Salaries
Q3
Total Supply
5
Final Demand
Q1 Intermediate usage Q2 Final demand Q3 Primary inputs to production Q4 Primary inputs to final demand
Wages & Salaries Gross operating Surplus
Intermediate Demand
From
Other Final Demand
Private Consumption
Public Consumption
Tertiary Sector
Seconary Sector
Total Demand
Public Consumption
Final Demand
Primary Sector Secondary Sector
3b
Tertiary Sector
Intermediate Demand
Primary Sector Intermediate Inputs
4
Direct Value Added
Income spent (demand in Italian economy)
Ex emplary Input-Output Table of a closed economy
From
The calculation of both reaction chains is based on the extended Input-Output Model for Italy (step 4). This model quantifies the socio-economic contribution of the JSF program to the Italian economy up to 2035.
Direct
Demand in Italian economy
3a To
Profit, depreciation, etc.
Primary Sector
The occurring direct effects have two main reaction chains in consequence resulting from the demand for Italian goods and services due to production input demand (3a) and due to income spend (3b).
Employee compensation
Intermediate Inputs
2
Domestic input (supplied by Italian companies)
Seconary Sector
Imports (imports from foreign countries)
Gross operating Surplus Tax es Imports
Total Supply
Indirect output = Indirect production
Induced employment
Induced Value Added
Induced output = Indirect production value
3 February 2014 26
Input data from Lockheed Martin, Ministry of Defense and survey Order volume
1
Appendix 1 – Methodology for Impact Assessment
Direct Output = Production value Spend for
How the model works…
Ex emplary Input-Output Table of a closed economy
Q1
To
Q2
Tertiary Sector
Q4
Tax es Imports
6
Italian F-35 Lightning II Program • Economic Impact Assessment PwC
Indirect Value Added
Indirect income spent = demand in Italian economy
Primary Inputs To Production
Primary Inputs To Production
Indirect employment
Other Final Demand
Private Consumption
Total Demand
Q1 Intermediate usage Q2 Final demand Q3 Primary inputs to production Q4 Primary inputs to final demand
Primary Sector Secondary Sector
Q1
Q2
Q3
Q4
Tertiary Sector Wages & Salaries
Q3
Total Supply
5
Final Demand
Q1 Intermediate usage Q2 Final demand Q3 Primary inputs to production Q4 Primary inputs to final demand
Wages & Salaries Gross operating Surplus
Intermediate Demand
From
Other Final Demand
Private Consumption
Public Consumption
Tertiary Sector
Seconary Sector
Primary Sector Intermediate Inputs
Total Demand
Public Consumption
Final Demand
Primary Sector Secondary Sector
3b
Tertiary Sector
Intermediate Demand
From
4
Direct Value Added
Income spent (demand in Italian economy)
Ex emplary Input-Output Table of a closed economy
These indirect effects also imply induced effects from indirect consumption, which are represented in step 6 along with the induced effects from direct consumption that resulted from the reaction chain evolved in 3b.
Direct
Demand in Italian economy
3a To
Profit, depreciation, etc.
Primary Sector
Applying the model results in the quantification of indirect socio-economic effects, step 5, that resulted from the reaction chain evolved in 3a.
Employee compensation
Intermediate Inputs
2
Domestic input (supplied by Italian companies)
Seconary Sector
Imports (imports from foreign countries)
Gross operating Surplus Tax es Imports
Total Supply
Indirect output = Indirect production
Induced employment
Induced Value Added
Induced output = Indirect production value
3 February 2014 27
Appendix 1 – Methodology for Impact Assessment
Conservative approach The PwC IO model conservatively anticipates economic structural changes over time. The VA and Labor multipliers consider: •
productivity increase;
•
domestic supply share variations;
•
technology changes;
•
value added intensity;
•
adjustments for inflation;
Charts on the left refers to two of the most indirectly activated sectors by the JSF program in Italy.
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This publication was prepared by PricewaterhouseCoopers Advisory SpA for Lockheed Martin Corporation. Lockheed Martin Co. holds the copyright of this publication. Information published in this report can be reproduced only if reference is made to this publication. The views expressed herein are those of the authors and do not represent any official view of Lockheed Martin Co., unless otherwise stated. This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers Advisory SpA, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
In this document, “PwC” refers to PricewaterhouseCoopers Advisory SpA which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.
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